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During 2017, Roblez Corporation had the following transactions and events.

1. Declared a cash dividend.
2. Issued par value common stock for cash at par value.
3. Completed a 2-for-1 stock split in which $10 par value stock was changed to $5 par value stock.
4. Declared a small stock dividend when the market price was higher than par value.
5. Made a prior period adjustment for overstatement of net income.
6. Issued the shares of common stock required by the stock dividend declaration in item no. 4 above.
7. Paid the cash dividend in item no. 1 above.
8. Issued par value common stock for cash above par value.

Required:
Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders’ equity.

Sagot :

Answer:

The effects of each of the items can be indicated as follows:

                                             Paid in Capital                                        

Item      Capital Stock             Additional         Retained Earnings

  1.              No Effect                  No Effect                  Decrease

 2.              Increase                   No Effect                  No Effect

 3.              No Effect                  No Effect                  No Effect

 4.              Increase                   Increase                   Decrease

 5.              No Effect                  No Effect                  Decrease

 6.              No Effect                  No Effect                  No Effect

 7.              No Effect                   No Effect                 No Effect

 8.              Increase                    Increase                  No Effect

.

Explanation:

1. Declared a cash dividend.

This decreases cash and retained earnings but has no effect on common stock and additional paid in capital.

2. Issued par value common stock for cash at par value.

This increases cash and also increases common stock.

3. Completed a 2-for-1 stock split in which $10 par value stock was changed to $5 par value stock.

This does not affect any account but only increases the number of shares without any increase in the total common stock value.

4. Declared a small stock dividend when the market price was higher than par value.

This is a type of dividend that increases the common stock and additional paid in capital but decreases the retained earnings.

5. Made a prior period adjustment for overstatement of net income.

This reduces the net income and the retained earnings no effect on common stock and additional paid in capital.

6. Issued the shares of common stock required by the stock dividend declaration in item no. 4 above.

Since this is just to effect number 4 above, it has no further effect on any of the subdivisions of stockholders’ equity.

7. Paid the cash dividend in item no. 1 above.

Since this is just to effect number 1 above, it has no further effect on any of the subdivisions of stockholders’ equity.

8. Issued par value common stock for cash above par value.

This increases cash, common stock, and additional paid in capital. But this does affect retained earnings.

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